BLM, private companies see big decline in drilling permits

FARMINGTON — The Bureau of Land Management says there is a 30 percent drop in the number of applications for a permit to drill compared with the number granted during 2007.

The local BLM office issued 444 permits to date, and anticipates issuing 460 by Sept. 30, the end of the federal fiscal year, according to Farmington Field Office spokesman Bill Papich.

The Farmington Office saw 630 applications during fiscal year 2007.

The to-date number indicates a 30 percent decrease from last year's permits. Assuming the Bureau's projection of 460 permits by fiscal year's end is correct, the number would indicate 27 percent fewer permits issued during 2008 than 2007.

"We are a regulatory and permitting agency, and as such the BLM doesn't speculate about the reasons behind the numbers," Papich said on behalf of Assistant Field Manager Minerals, David J. Mankiewicz.

Papich would not comment further.

Drillers point to pit rules

Tom Mullins, principal/engineering manager of Synergy Operating, LLC, said a larger drop exists overall in the number of permits for which companies working in the San Juan Basin applied this year.

"There's a 60 percent drop in the number," Mullins said. "I've been tracking it every two weeks."

Synergy is deferring its drilling activities until its employees understand how to implement the pit rules, which are new regulations on how companies contain and dispose of drilling by-products throughout New Mexico.

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The state's Oil Conservation Division implemented the rules in early June.

"People are interested in drilling, but right now are in the understanding phase," Mullins said.

The drop in applications heralding the next federal fiscal year will continue because companies in San Juan Basin are hampered further by a hold in drilling that affects about 40 percent of this area.

"We can't drill from November to April because of Deer and Elk Winter Range issues that affect about 40 percent of the San Juan Basin," Mullins added. "It's because of a lawsuit filed by Wild Earth Guardians."

Mullins' data shows applications for permits to drill averaged about 30 per month before the pit rules went into effect. They since have slowed to about five to 10 as companies figure out how to comply with the regulations.

Jim Lowry, communications coordinator for Conoco- Phillips, the largest driller in the San Juan Basin, confirmed the company has seen a drop in submissions for the applications.

He was unable to furnish details, however, because he had to evacuate Houston and set up his office in Midland, Texas, as Hurricane Ike bore down on the Lone Star State.

"We have a number of marginal projects that went non-economic with this pit rule," said T. Greg Merrion, president of Merrion Gas and Oil. "A lot of the projects we are looking at are not in New Mexico, and that makes me sad."

The company's projects are in Colorado, Utah, Wyoming and California.

"The next year or two will show how much damage will be done to the state," he said.

John Roe, engineering manager of Dugan Production Corp., agreed the pit rules are a factor, but noted the company has not issued a directive limiting drilling. Rather, its staff is delayed on drilling projects because it's busy learning how to comply with the regulations.

"The Rio Arriba County Commission put a moratorium on drilling, but only on fee land," Roe said. "Their permits also come from the Farmington (BLM) office."

Normally, Dugan drills about 50 wells annually, Roe said.

Financial effects are a given

The state will feel the effects deep in its pocketbooks, said Rep. James Strickler, R-San Juan County.

"We're early in the game, but the fewer wells that are drilled means less revenue to the state," he said. "It depends on the wells' production, and I'd really be guessing if I named an amount."

Revenue from the oil and gas industry amounts to 25 to 30 percent of New Mexico's budget.

"There's the General Fund, royalty revenues, the permanent fund," he said. "We fill several buckets from oil and gas."

Industry advocate Bob Gallagher, president of New Mexico Oil and Gas Association, said the 75 to 100 people he's talked to indicate a 25 to 40 percent drop in drilling permit applications statewide. His sources share the pit rule-related concerns common among San Juan Basin oil and natural gas producers.

"I'm asking the lieutenant governor to have a meeting with the industry and to bring the Oil Conservation Division people with her," he said. "I'm suggesting to Diane (Denish, the state's lieutenant governor) that she take ownership over this and get us some relief."

He's also asking industry reps to document the problems they're having with pit rule implementation in order to better brief Denish on the scope of the problems.

"I want hard, cold facts," Gallagher said. "I don't want Tic-Tac stuff where they can't quite remember how long they worked on a problem, or how much it cost them."

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